Taxes on mining in Canada are distortionary and are costing provincial coffers; especially Ontario's - Report by Jack Mintz and Duanjie Chen

CALGARY, May 30, 2013 /CNW/ - The province of Ontario ended its fiscal
year with a $12 billion deficit. Ontario may be in worse fiscal shape
than well-known basket cases like the state of California. One would
think that a province so financially debilitated would want to avoid
giving complex and unnecessary tax breaks to resource companies. Yet, a
review of the mining-tax regimes across the country by Duanjie Chen and
Jack Mintz of The School of Public Policy finds that Ontario's system
is redundant, expensive and wasteful.

Ontario is not the only province that needs to improve its mining-tax
regime. In every province except New Brunswick, mining firms enjoy a
lower marginal rate for taxes and royalties than for non-resource
companies. The result has been a distortion of investment toward mining
projects that might otherwise be economically inefficient. Even in
major oil-producing provinces, such as Alberta, Saskatchewan and
Newfoundland, mining investment benefits from larger tax incentives
than oil and gas investment. The reasons for favouring the mining of
metal over the mining of oil are unclear and economically
unjustifiable. According to co-author Jack Mintz, "Provincial
mining-tax systems are distortionary and complex, resulting in sub-par
profitability due to excessive investment in certain tax-favoured
assets. Both the federal and provincial corporate income tax regimes
need to be overhauled."

The federal government has begun making changes to its tax policies to
scale back preferential and irrational inducements for mining
investment, but Ottawa's efforts to modernize Canada's mining-tax
structure can only go so far, when provinces continue to rely on overly
complex and distortionary tax systems. The next step for Canada's
mining-tax system requires provinces to eliminate preferential mining
tax breaks. Provincial treasuries cannot afford it, and neither can the
Canadian economy as a whole.

Mintz sees two steps that can be taken by provinces, "First, the special
tax credit and the generous depreciation allowance for mining
investment given to the mining industry should be eliminated gradually.
And second, the provincial mining-tax systems should be reformed so as
to create a rent-based cash-flow tax, which would strike an adequate
split of the economic rent between the government and miners while
fully recognizing investment risks."